T-Mobile Not Stealing Customers… Yet

Are T-Mobile's "uncarrier" ways helping it steal customers from its competitors? If you follow the boisterous claims of its CEO, you'd think US consumers are chomping at the bit to tear up their contracts and join the magenta movement. But the numbers suggest that's not the case, or at least not yet.

According to the latest consensus estimates for wireless subscriber growth, which T-Mobile US Inc. provided to industry financial analyst Craig Moffett as part of its quarterly survey of sell-side estimates, the industry as a whole gained 800,000 postpaid customers in the past three months.

So where are these nearly one million customers coming from? For now, some could be from the smaller operators, upgrading to a smartphone and a tier-one provider for the first time. Others are likely tablet subscriptions or other non-mobile postpaid users. But, increasingly, these customers have to be coming from other big carriers, which means additions can't stay that high for long.

In fact, I'm surprised they have so far. The level of promotions in the wireless industry has to be at an all-time high. In the past week alone, Verizon Wireless dropped prices on its More Everything plans to match AT&T Inc. (NYSE: T)'s offer of four lines and 10GB of data for $40 per line per month, and today it's offering up 1GB of free data to tablet customers on the plan. (See AT&T Joins Verizon in the Shared Data Pool.)

That said, it hasn't yet erupted into an all-out price war. While the operators have tweaked their offers and repackaged how they price, the actual prices haven't come plummeting down. Their earnings haven't been affected yet either. But going forward, they will likely come at the expense of subscriber growth, if not revenues. (See Verizon's 4G Strength Keeps It Above the Fray.)

Moffett says that consensus expectations for 2014 post-paid net adds have fallen at Verizon from 3.53 million nine months ago to less than 3 million today, and from 1.4 million six months ago at AT&T to 1.2 million today. For Sprint, postpaid subscriber losses in 2014 have more than doubled over the past three months to 617,000. T-Mobile, meanwhile, continues to grow -- from 1.3 million three months ago up to 2.9 million additions expected today. Incredibly, a year ago, T-Mobile's estimates were only for 50,000 postpaid subscriber additions this year. (See T-Mobile Leads, Sprint Suffers in Pricing Wars.)

That growth has to come from somewhere. But as Moffett points out, the estimates have to be off base. He writes, "At Verizon, consensus estimates for churn has ticked up by 2 bps [basis points] over the past three months, AT&T’s has increased 3 bps, Sprint’s, 8 bps, and T-Mobile’s fell by 4 bps. Street estimates, in other words, seem to imply that the TMUS’s subscriber gains are largely coming out of thin air, and that the big four’s recent promotion wars have really only resulted in, well, more customers for everyone."

At some point, that can't last, and it might just take an all-out price war to tip the scales. T-Mobile has made moves in that direction, and Sprint's new boss, SoftBank Corp. CEO Masayoshi Son, has promised one if he's able to acquire the Uncarrier. So far, there's more of price squabble in the US, but as T-Mobile's consensus estimates prove, a lot can change in a very short amount of time.

Uncarrier moves Going back through to add all those links on past T-Mobile moves reminded me just how much it has done in such a short period of time. A lot of its pricing changes were more about changing the structure and promotions, but there were also some significant price drops in there. It'll be interesting to see how the market continues to evolve in pricing and plans going forward.

More fun with numbers If churn is up at competitors but down at T-Mobile, doesn't that suggest that there's more than thin air at play? Also, the fact that competitors have lowered expectations for net adds while T-Mobile is increasing its net adds also indicates something positive is happening.

Re: More fun with numbers True, it's just not happening as much as you might expect yet. Adding 800,000 in total is still pretty good for the industry. It'd be lower if they were just trading customers.

Re: More fun with numbers Winning customers through unsustainable pricing rarely works as a long-term strategy. So the question is whether there's enough real margin in current prices to sweat things down. I will guess that any too-good-to-be-true price plan will be exactly that -- a lowball bait price that will require a good portion of hidden extras.

Re: More fun with numbers I agree, Mendyk, and I also think that unlike long-distance or home phone service, wireless from an infrastructure perspective of course has a completely different cost structure, so the race to zero specter really isn't feasible. That said, my prediction is that going forward voice will always be the loss leader...while video and plans oriented around accessing video (to your point about app-oriented plans, Sarah) will become more and more attractive.

I think T-Mobile's genius is in its positioning as being above the AT&T-Verizon fray; it's a little younger, a little hipper...and definitely has more whimsy than Sprint (and incidentally, that Framily campaign bothers me to no end--next thing you know it will introduce a multilevel marketing element).

The price wars of the airline industry were unsustainable, but the airlines though that was the best way to lure customers. They had plenty of customers, but also plenty of red ink. Now the airlines are making a lot of money -- at the customers' expense and inconvenience.

Airlines, telecom carriers and other businesses can only go so far with price wars. And cheaper (price) service usually means cheaper (quality) service.

Re: More fun with numbers We also should remember that Mr. Son lost a boatload of money in the first dot-com bubble. Fortunately for him, he had three boatloads, so no big worries. But his business decisions are not infallible.

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